SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB/A

(Mark One)


/X/  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the fiscal year ended December 31, 1998
                          -----------------


/ /  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from          to
                               --------     ---------

                         Commission file number 1-13587

                         QUERYOBJECT SYSTEMS CORPORATION
--------------------------------------------------------------------------------

            (Exact Name of Registrant as Specified in its Charter)

            Delaware                                       94-3087939
    -------------------------------            -------------------------------

    (State or other jurisdiction of              (IRS Employer Identification
     incorporation or organization                          Number)


            60 Charles Lindbergh Boulevard, Uniondale, New York 11553
--------------------------------------------------------------------------------
            (Address of Principal Executive Offices)      (Zip Code)

       Registrant's telephone number, including area code: (516) 228-8500

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.001 per share

                  Indicate by check mark  whether the  Registrant  (1) has filed
all  reports  required  to be filed  by  Section  13 or 15(d) of the  Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter  period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X    No
                                                      ---    ----


<PAGE>

                  Check  if there  is no  disclosure  of  delinquent  filers  in
response to Item 405 of Regulation S-B contained in this form, and no disclosure
will be  contained,  to the best of the  Registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. X

                  State the issuer's  revenues for its most recent  fiscal year:
The issuer's revenues for the fiscal year ended December 31, 1998 were $928,505.

                  The  aggregate  market  value  of the  voting  stock  held  by
non-affiliates of the Registrant computed by reference to the price at which the
stock was sold on March 28, 1999 was approximately:  $5,670,000.  Solely for the
purposes of this  calculation,  shares  held by  directors  and  officers of the
Registrant  have  been  excluded.   Such  exclusion   should  not  be  deemed  a
determination  or an admission by the Registrant that such  individuals  are, in
fact, affiliates of the Registrant.

                  Indicate  the  number  of  shares  outstanding  of each of the
issuer's  classes of common stock, as of the latest  practicable  date: At March
15, 1999,  there were outstanding  6,068,485  shares of the Registrant's  Common
Stock, $.001 par value.

                       DOCUMENTS INCORPORATED BY REFERENCE

                  Certain   portions  of  the   Registrant's   definitive  proxy
statement to be filed not later than April 30, 1999 pursuant to  Regulation  14A
are  incorporated  by reference in Items 9 through 12 of Part III of this Annual
Report on Form 10-KSB.

                  Transitional Small Business Disclosure Format (check one):

                  Yes       No   X 
                      -----   -----


<PAGE>
ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K.

(a)      EXHIBITS


      Exhibit
      Number                 Exhibits
      ------                 --------
       3.1                   Certificate   of   Incorporation   of  the  Company
                             (Incorporated  by  reference  to Exhibit 3.1 to the
                             Registration    Statement   on   Form   SB-2,   No.
                             333-34667).
       3.2                   By-laws of the Registrant, as amended (Incorporated
                             by  reference  to Exhibit  3.2 to the  Registration
                             Statement on Form SB-2, No. 333-34667).
       4.1                   Specimen  Certificate  of the  Registrant's  Common
                             Stock  (Incorporated by reference to Exhibit 4.1 to
                             the  Registration  Statement on Form SB-2, No. 333-
                             34667).
       4.2                   Form of Representative's Purchase Option granted to
                             GKN Securities Corp.  (Incorporated by reference to
                             Exhibit 4.2 to the  Registration  Statement on Form
                             SB-2, No. 333-34667).
       4.3                   Form of Warrant issued in connection  with the July
                             1997 Private  Placement  (Incorporated by reference
                             to Exhibit  4.3 to the  Registration  Statement  on
                             Form SB-2, No. 333-34667).
       4.4                   Certificate of Designations,  Preferences and Other
                             Rights and  Qualifications  of Series A Convertible
                             Preferred  Stock   (Incorporated  by  reference  to
                             Exhibit  99(A) of the Form 10-QSB for the quarterly
                             period ended September 30, 1998)
       4.5                   Certificate  of  Correction to the  Certificate  of
                             Designations,  Preferences  and  Other  Rights  and
                             Qualifications  of Series A  Convertible  Preferred
                             Stock  (Incorporated  by reference to Exhibit 99(B)
                             to the Form 10-QSB for the  quarterly  period ended
                             September 30, 1998).
       4.6                   Certificate of Designations,  Preferences and Other
                             Rights and  Qualifications  of Series B Convertible
                             Preferred  Stock   (Incorporated  by  reference  to
                             Exhibit  99(C) to the Form 10-QSB for the quarterly
                             period ended September 30, 1998).
       4.7                   Form  of  Warrant   Issued  in  Private   Placement
                             (Incorporated  by reference to Exhibit 99(D) to the
                             Form  10-QSB  for  the   quarterly   period   ended
                             September 30, 1998).
       10.1                  1991 Incentive Stock Option Plan  (Incorporated  by
                             reference  to  Exhibit  10.1  to  the  Registration
                             Statement on Form SB-2, No. 333-34667).
       10.2                  Form of Stock Option  Agreement  for  Non-Qualified
                             Options  granted  to  Advisors   (Incorporated   by
                             reference  to  Exhibit  10.2  to  the  Registration
                             Statement on Form SB-2, No. 333-34667).
       10.3                  Employment  Agreement,  dated as of May 1, 1997, by
                             and  among,   the   Company   and  Daniel  M.  Pess
                             (Incorporated  by  reference to Exhibit 10.5 to the
                             Registration    Statement   on   Form   SB-2,   No.
                             333-34667).
       10.4                  Employment  Agreement,  dated as of May 8, 1996, by
                             and   among,   the   Company   and  Andre   Szykier
                             (Incorporated  by  reference to Exhibit 10.6 to the
                             Registration    Statement   on   Form   SB-2,   No.
                             333-34667).
       *10.5                 Amendment  to  Employment  Agreement,  dated  as of
                             December  16, 1998,  by and among,  the Company and
                             Andre Szykier.





<PAGE>


      Exhibit
      Number                 Exhibits
      -------                --------

        10.6                 Employment  Agreement,  dated  as of  September  1,
                             1997,  by and  among,  the  Company  and  Robert A.
                             Thompson (Incorporated by reference to Exhibit 10.7
                             to the  Registration  Statement  on Form SB-2,  No.
                             333-34667).
        10.7                 Employment Agreement, dated as of October 14, 1997,
                             by and  among,  the  Company  and  Alan W.  Kaufman
                             (Incorporated  by reference  to Exhibit  10.9(a) to
                             the  Registration   Statement  on  Form  SB-2,  No.
                             333-34667).
       *10.8                 Amendment  to  Employment  Agreement,  dated  as of
                             January 9, 1999, by and among, the Company and Alan
                             W. Kaufman.
      **11.1                 Computation of Net Loss Per Share.
       *23                   Consent of PricewaterhouseCoopers LLP
       *27                   Financial Data Schedule

---------------------------
*        Previously filed with the initial filing of the Form 10-KSB for Fiscal
         year ended December 31, 1998.
**       Filed herewith.
(b)     Reports on Form 8-K
         None.




<PAGE>

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934,  the  Registrant  has duly caused this  Amendment No. 1 to
Form 10-KSB report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                    QUERYOBJECT SYSTEMS CORPORATION


Dated:   May 7, 1999             By:   /s/ Robert Thompson
                                        -------------------------------------
                                        Robert Thompson
                                        President and Chief Executive Officer




<PAGE>

QUERYOBJECT SYSTEMS
CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997



<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            PAGE

Report of Independent Accountants...........................................F-2
Consolidated Balance Sheet as of December 31, 1998..........................F-3
Consolidated Statement of Operations for the years 
     ended December 31, 1998 and 1997.......................................F-4
Consolidated Statement of Changes in Stockholders' Equity 
     (Deficit) for the years ended
     December 31, 1998 and 1997.............................................F-5
Consolidated Statement of Cash Flows for the years ended 
     December 31, 1998 and 1997.............................................F-6
Notes to the Consolidated Financial Statements..............................F-7



                                       F-1


<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of
QueryObject Systems Corporation

In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated  statements  of  operations,  of  changes in  stockholders'  equity
(deficit)  and of cash flows  present  fairly,  in all  material  respects,  the
financial  position of Query  Object  Systems  Corporation  (the  "Company")  at
December 31, 1998,  and the results of its operations and its cash flows for the
two  years  then  ended  in  conformity  with  generally   accepted   accounting
principles.  These financial  statements are the responsibility of the Company's
management;  our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management,  and evaluating the overall consolidated financial statement
presentation.  We believe  that our audits  provide a  reasonable  basis for the
opinion expressed above.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from operations,  has deficiencies in working capital and  stockholders'  equity
and has  incurred  negative  cash flows  from  operating  activities  that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.



PricewaterhouseCoopers LLP
Melville, New York
March 19, 1999


                                      F-2
<PAGE>

QUERYOBJECT SYSTEMS CORPORATION

CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------


                                                                   December 31,
                                                                       1998
                                                                   ------------
ASSETS
Current assets
     Cash and cash equivalents                                   $    854,018
     Accounts receivable, net of allowance for doubtful
         accounts of $21,900                                          276,527
     Prepaid expenses and other current assets                         37,751
                                                                 ------------

             TOTAL CURRENT ASSETS                                   1,168,296

Property and equipment, net                                           960,236
Deposits and other assets                                             146,031
                                                                 ------------

             TOTAL ASSETS                                        $  2,274,563
                                                                 ------------

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
     Accounts payable                                            $    491,442
     Accrued expenses                                                 795,333
     Capital lease obligations due within one year                    175,809
     Deferred revenue                                                  84,791
     Deferred rent                                                     12,016
                                                                 ------------

             TOTAL CURRENT LIABILITIES                              1,559,391

Stockholder notes payable                                             300,000
Capital lease obligations                                             171,486
Deferred rent                                                         257,812
                                                                 ------------

             TOTAL LIABILITIES                                      2,288,689
                                                                 ------------

Stockholders' Deficit
     Preferred stock, $.001 par value: 2,000,000 shares
          authorized; 1,731,125 and 100,000
          shares of Series A and B, respectively,
          issued and outstanding                                        1,831
     Common stock, $.001 par value: 30,000,000 shares
         authorized; 5,122,985 shares issued and outstanding            5,123
     Additional paid-in-capital                                    36,910,576
     Accumulated deficit                                          (35,412,456)
     Stock subscriptions receivable                                (1,519,200)
                                                                 ------------

             TOTAL STOCKHOLDERS' DEFICIT                              (14,126)
                                                                 ------------

Commitments and contingencies (Notes 2 and 13)

             TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT         $  2,274,563
                                                                 ------------

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-3

<PAGE>

QUERYOBJECT SYSTEMS CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                               1998            1997
                                                                         ----------------------------
<S>                                                                      <C>             <C>         

Revenues
     Software licenses                                                   $    517,350    $    596,345
     Services and maintenance                                                 111,155         415,814
     Other                                                                    300,000            --
                                                                         ------------    ------------

             TOTAL REVENUES                                                   928,505       1,012,159

Cost of revenues
     Software licenses                                                          5,668          74,605
     Services and maintenance                                                  88,756         131,190
                                                                         ------------    ------------

             TOTAL COST OF REVENUES                                            94,424         205,795
                                                                         ------------    ------------

GROSS PROFIT                                                                  834,081         806,364
                                                                         ------------    ------------

Operating expenses
     Sales and marketing                                                    4,321,359       4,575,735
     Research and development                                               2,305,678       2,523,127
     General and administrative                                             1,500,506       1,914,252
                                                                         ------------    ------------

             TOTAL OPERATING EXPENSES                                       8,127,543       9,013,114
                                                                         ------------    ------------

LOSS FROM OPERATIONS                                                       (7,293,462)     (8,206,750)

Interest income                                                               118,423          77,979
Interest expense                                                             (135,498)       (805,761)
Other income, net                                                              16,505             542
                                                                         ------------    ------------

LOSS BEFORE EXTRAORDINARY ITEM                                             (7,294,032)     (8,933,990)

Extraordinary loss from early extinguishment of debt                             --        (1,629,494)
                                                                         ------------    ------------

NET LOSS                                                                 $ (7,294,032)   $(10,563,484)
                                                                         ------------    ------------

CALCULATION OF NET LOSS AVAILABLE TO COMMON STOCKHOLDERS

Net loss                                                                   (7,294,032)    (10,563,484)
Effect of beneficial conversion feature of convertible preferred stock     (2,251,438)           --
                                                                         ------------    ------------

Net loss available to common stockholders                                $ (9,545,470)   $(10,563,484)

Net loss per share before extraordinary item                             $      (1.86)   $      (6.61)
Extraordinary item                                                               --             (1.21)
                                                                         ------------    ------------

Basic and diluted net loss per common share                              $      (1.86)   $      (7.82)

Weighted average shares used in per share computation (Note 1)              5,120,205       1,351,074
                                                                         ------------    ------------
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       F-4
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                     SERIES A CONVERTIBLE         SERIES B CONVERTIBLE      SERIES C CONVERTIBLE    
                                                        PREFERRED STOCK              PREFERRED STOCK           PREFERRED STOCK      
                                                   ---------------------------------------------------------------------------------
                                                     SHARES           AMOUNT      SHARES          AMOUNT       SHARES       AMOUNT  
                                                   ---------------------------------------------------------------------------------

<S>                                                    <C>             <C>       <C>               <C>        <C>            <C>    
Balance at January 1, 1997                             32,582          $ 33      17,737            $ 18       230,498        $ 230  

Issuance of common stock warrants in
connection with bridge financing                                                                                                    
Accretion of excess of redemption value of
    Series D preferred stock over fair value
    at issuance date                                                                                                                
Issuance of options on Series D
    preferred stock                                                                                                                 
Conversion of preferred stock to
    common stock upon initial public offering         (32,582)          (33)    (17,737)            (18)     (230,498)        (230) 
Conversion of Series D preferred stock to
    common stock upon initial public offering                                                                                       
Issuance of common stock upon initial public
    offering, net of issuance cost of $2,530,426                                                                                    
Repurchase of common stock                                                                                                          
Issuance of common stock options for
    consulting services                                                                                                             
Common stock options and warrants exercised                                                                                         
Net loss                                                                                                                            
                                                   -----------  ------------  ----------  --------------  ------------  ----------- 

Balance at December 31, 1997                                -             -           -               -             -            -  

Issuance of Series A & B preferred stock:
    For cash and notes, net of issuance costs       1,721,125         1,721     100,000             100                             
    In settlement of bridge notes payable              10,000            10                                                         
Beneficial conversion feature of convertible
    Series A and B preferred stock                                                                                                  
Issuance of common stock options for
    consulting services                                                                                                             
Receipt of receivable from stockholder                                                                                              
Common stock options exercised                                                                                                      
Net loss                                                                                                                            
                                                   -----------  ------------  ----------  --------------  ------------  ----------- 

Balance at December 31, 1998                        1,731,125       $ 1,731     100,000           $ 100             -            -  
                                                   ---------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

                                                                                                                           TOTAL
                                                        COMMON STOCK      ADDITIONAL                       STOCK       STOCKHOLDERS'
                                                  -------------------      PAID-IN      ACCUMULATED    SUBSCRIPTIONS      EQUITY 
                                                     SHARES    AMOUNT      CAPITAL        DEFICIT        RECEIVABLE     (DEFICIT)
                                                  ---------------------------------------------------------------------------------
                                                                                                                                   
<S>                                                 <C>         <C>       <C>           <C>             <C>           <C>          
Balance at January 1, 1997                          863,590     $ 864     $ 4,035,258   $ (14,343,938)  $   (12,300)  $(10,319,835)
                                                                                                                                   
Issuance of common stock warrants in                                                                                               
connection with bridge financing                                            1,512,397                                    1,512,397 
Accretion of excess of redemption value of                                                                                         
    Series D preferred stock over fair value                                                                                       
    at issuance date                                                                         (917,571)                    (917,571)
Issuance of options on Series D                                                                                                    
    preferred stock                                                           363,800                                      363,800 
Conversion of preferred stock to                                                                                                   
    common stock upon initial public offering       331,523       331             (50)                                           - 
Conversion of Series D preferred stock to                                                                                          
    common stock upon initial public offering     1,365,790     1,366      11,583,231                                   11,584,597 
Issuance of common stock upon initial public                                                                                       
    offering, net of issuance cost of $2,530,426  2,500,000     2,500      12,467,074                                   12,469,574 
Repurchase of common stock                           (7,368)       (7)                        (41,993)                     (42,000)
Issuance of common stock options for                                                                                               
    consulting services                                                       321,470                                      321,470 
Common stock options and warrants exercised          57,070        57         101,526                                      101,583 
Net loss                                                                                  (10,563,484)                 (10,563,484)
                                                  ---------- --------- --------------- ---------------  ------------  -------------
                                                                                                                                   
Balance at December 31, 1997                      5,110,605     5,111      30,384,706     (25,866,986)      (12,300)     4,510,531 
                                                                                                                                   
Issuance of Series A & B preferred stock:                                                                                          
    For cash and notes, net of issuance costs                               4,096,777                    (1,519,200)     2,579,398 
    In settlement of bridge notes payable                                      19,990                                       20,000 
Beneficial conversion feature of convertible                                                                                       
    Series A and B preferred stock                                          2,251,438      (2,251,438)                           - 
Issuance of common stock options for                                                                                               
    consulting services                                                       145,792                                      145,792 
Receipt of receivable from stockholder                                                                       12,300         12,300 
Common stock options exercised                       12,380        12          11,873                                       11,885 
Net loss                                                                                   (7,294,032)                  (7,294,032)
                                                  ---------- --------- --------------- ---------------  ------------  -------------
                                                                                                                                   
Balance at December 31, 1998                      5,122,985   $ 5,123    $ 36,910,576   $ (35,412,456)  $(1,519,200)  $    (14,126)
                                                  ---------------------------------------------------------------------------------
</TABLE>

                                       F-5
<PAGE>

QUERYOBJECT SYSTEMS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOW
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                           1998             1997
                                                                     -----------------------------

<S>                                                                  <C>             <C>
Cash flows from operating activities
     Net loss                                                        $ (7,294,032)   $(10,563,484)
     Adjustments to reconcile net loss to net cash used in
        operating activities
            Depreciation and amortization                                 420,820         373,434
            Write off of leasehold improvements                              --             5,825
            Amortization of debt discount                                    --           318,705
            Amortization of debt issuance costs                              --           100,432
            Extraordinary loss on extinguishment of debt                     --         1,629,494
            Options issued for consulting services                        145,792         685,270
            Changes in assets and liabilities
                Accounts receivable, net                                  223,240         320,540
                Prepaid expenses and other current assets                  10,503         (17,735)
                Deposits and other assets                                   4,243         (53,318)
                Accounts payable and accrued expenses                    (355,338)       (166,078)
                Deferred rent                                                 896          13,293
                Deferred revenue                                           54,756        (102,264)
                Customer advance                                         (300,000)           --
                                                                     ------------    ------------

                NET CASH USED IN OPERATING ACTIVITIES                  (7,089,120)     (7,455,886)
                                                                     ------------    ------------

Cash flows from investing activities
     Acquisitions of property and equipment                              (132,795)       (590,608)
     Note receivable from stockholder                                     (65,000)        (42,000)
     Purchase of restricted certificate of deposit                        (23,201)        (37,785)
                                                                     ------------    ------------

                NET CASH USED IN INVESTING ACTIVITIES                    (220,996)       (670,393)
                                                                     ------------    ------------

Cash flows from financing activities
     Proceeds from issuance of Series A and B preferred stock, net      2,579,398            --
     Proceeds from issuance of common stock, net                           11,885      12,571,157
     Proceeds from Notes and Bridge financings payable, net               490,000       5,313,766
     Repayment of Notes and Bridge financings payable                    (170,000)     (5,850,000)
     Repayment of notes payable                                              --           (25,000)
     Proceeds from loan payable to stockholders                          (891,335)       (120,000)
     Proceeds from loan receivable from stockholder                        12,300            --
     Payments of capital lease obligations                               (235,706)       (254,979)
     Proceeds from sale-leaseback transaction                              29,202         561,119
     Release of restricted certificate of deposit                         901,040            --
                                                                     ------------    ------------

                NET CASH PROVIDED BY FINANCING ACTIVITIES               2,726,784      12,196,063
                                                                     ------------    ------------

Net (decrease) increase in cash and cash equivalents                   (4,583,332)      4,069,784

Cash and cash equivalents at beginning of year                          5,437,350       1,367,566
                                                                     ------------    ------------

Cash and cash equivalents at end of year                             $    854,018    $  5,437,350
                                                                     ------------    ------------
</TABLE>

                                      F-6

<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

1.       ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         ORGANIZATION
         QueryObject   Systems   Corporation   (formerly  CrossZ  Software)  was
         originally  incorporated  in California in February  1989. In May 1998,
         and pursuant to a plan of corporate reorganization,  the Company merged
         with its  wholly  owned  Delaware  subsidiary.  The  Company  develops,
         markets  and  supports  proprietary  business   intelligence   software
         solutions that enable  business  managers to make  strategic  decisions
         based on their corporate data.

         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION
         The  consolidated   financial   statements   include  the  accounts  of
         QueryObject  Systems  Corporation and its wholly owned subsidiary.  All
         significant   intercompany   transactions   have  been   eliminated  in
         consolidation.

         BASIC AND DILUTED NET LOSS PER SHARE
         The  presentation  of basic  and  diluted  net loss per  share has been
         revised to give effect to the conversion of the  Convertible  Preferred
         Stock from the date of conversion, which occurred simultaneous with the
         closing of the Company's initial public offering on November 20, 1997.

         Basic net loss per share is computed  by  dividing  the net loss by the
         sum  of  the  weighted   average  number  of  shares  of  common  stock
         outstanding,  including  the number of common  shares  issued  upon the
         conversion  of  Convertible   Preferred   Stock,  as  of  the  date  of
         conversion.

         Diluted  earnings  per share is based on the  potential  dilution  that
         would occur on exercise or conversion of securities  into common stock.
         At December  31,  1998 and 1997,  outstanding  options and  warrants to
         purchase 12,033,604 and 2,532,177 shares of common stock, respectively,
         that could  potentially  dilute basic  earnings per share in the future
         were not  included  in the  computation  of diluted  net loss per share
         because to do so would have had an antidilutive  effect for the periods
         presented.  The  computation  of  diluted  net loss per  share for 1997
         excludes  the  effect of shares  issuable  upon the  conversion  of the
         Convertible Preferred Stock prior to the date of conversion since their
         inclusion  would have had an  antidilutive  effect.  In  addition,  the
         common  shares  issuable  upon  the  conversion  of the  Series A and B
         Convertible  Preferred Stock issued in 1998 have been excluded from the
         computation  of  diluted  net loss per  share  due to the  antidilutive
         effect.  As a result,  the  basic and  diluted  per share  amounts  are
         identical for all periods presented.

         The 1997 quarterly information  previously reported has been revised on
         the same basis described above. The following are the revised quarterly
         basic and diluted net loss per common  share and the  weighted  average
         shares used in the basic and diluted net loss per share computation.
<TABLE>
<CAPTION>

                                                                        Three Months Ended
                                                                 March 31        June 30, September 30,
                                                                   1997           1997      1997
<S>                                                                <C>          <C>         <C>    
         Weighted average shares used in basic and diluted
           net loss per share computation, as revised              870,855      879,036     899,607
                                                                  --------      -------     -------
         Basic and diluted net loss per share, as revised         $   2.19      $ (1.82)    $ (2.75)
                                                                  --------      -------     -------
</TABLE>

         CASH AND CASH EQUIVALENTS
         The Company  considers  all highly  liquid  investments  with  original
         maturities of three months or less to be cash equivalents.

         REVENUE RECOGNITION
         The  Company   recognizes  revenue  in  accordance  with  the  American
         Institute  of  Certified  Public  Accountants  ("AICPA")  Statement  of
         Position  97-2 on Software  Revenue  Recognition.  Revenue from product
         licensing  is  generally  recognized  after  execution  of a  licensing
         agreement  and shipment of the product,  provided  that no  significant
         vendor  obligations  remain  and the  resulting  receivable  is  deemed
         collectable by management.  Service revenues  consists of data analysis
         using the Company's  proprietary  software performed for customers on a
         project  or  contract  basis  and are  recognized  over the term of the
         respective agreements.  Maintenance revenues consist of ongoing support
         and product  updates and are  recognized  ratably  over the term of the
         contract, generally twelve months.


                                      F-7
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         DEPRECIATION AND AMORTIZATION
         Depreciation  and  amortization  are computed  using the straight  line
         method over the estimated  useful lives of the assets,  generally three
         to five years.  Assets  acquired  under  capital  leases and  leasehold
         improvements  are  amortized  using the  straight-line  method over the
         shorter of the estimated useful lives of the assets or the terms of the
         related leases.

         SOFTWARE DEVELOPMENT COSTS
         Statement of Financial  Accounting Standards No. 86 "Accounting for the
         Costs of Computer  Software to be Sold,  Leased or Otherwise  Marketed"
         ("SFAS 86") requires the capitalization of certain software development
         costs once technological feasibility is established,  which the Company
         defines  as the  completion  of a working  model.  To date,  the period
         between   achieving   technological   feasibility   and   the   general
         availability  of such software has been short and software  development
         costs   qualifying   for   capitalization   have  been   insignificant.
         Accordingly, the Company has expensed all software development costs as
         incurred.

         ADVERTISING
         Advertising costs are included in sales and marketing  expenses and are
         expensed  as  incurred.   To  date  advertising  costs  have  not  been
         significant.

         INCOME TAXES
         The Company  provides for income taxes in accordance  with Statement of
         Financial  Accounting  Standards No. 109, "Accounting for Income Taxes"
         ("SFAS 109").  Income taxes are computed  using the asset and liability
         method.  Under the asset and  liability  method  specified by SFAS 109,
         deferred income tax assets and liabilities are determined  based on the
         differences between the financial reporting and tax bases of assets and
         liabilities and are measured using the currently  enacted tax rates and
         laws.

         USE OF ESTIMATES
         These   consolidated   financial   statements  have  been  prepared  in
         conformity with generally accepted accounting  principles which require
         management to make reasonable estimates and assumptions that affect the
         reported   amounts  of  assets  and   liabilities   and  disclosure  of
         contingencies  at the date of the  consolidated  financial  statements.
         Actual results could differ from those estimates.

         FAIR VALUE OF FINANCIAL INSTRUMENTS
         The carrying value of cash and cash equivalents,  accounts  receivable,
         accounts  payable and accrued expenses  approximates  fair value due to
         the relatively short term nature of these instruments.

         CONCENTRATIONS OF CREDIT RISK
         Financial   instruments  which  potentially   subject  the  Company  to
         significant  concentrations of credit risk consist principally of cash,
         cash equivalents and accounts  receivable.  The Company places its cash
         with high quality financial institutions.  The Company performs ongoing
         credit   evaluations  of  its  customers  and  generally   requires  no
         collateral.  The Company maintains reserves for potential credit losses
         and historically such losses have not been significant.

         ACCOUNTING FOR STOCK-BASED COMPENSATION
         In October 1995,  the Financial  Accounting  Standards  Board  ("FASB")
         issued Statement of Financial Accounting Standards No. 123, "Accounting
         for Stock-Based Compensation" ("SFAS 123"). SFAS 123 established a fair
         value based method of accounting for  stock-based  compensation  plans.
         The 


                                      F-8
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         Company has chosen to adopt the  disclosure  requirements  of SFAS 123,
         and continue to record  stock-based  compensation  in  accordance  with
         Accounting  Principles  Board  Opinion  No. 25,  "Accounting  for Stock
         Issued to  Employees"  ("APB  25").  Under APB 25, the  Company has not
         recognized compensation expense with respect to such awards because the
         exercise  price of options  granted to employees has  approximated  the
         fair market value of the common stock at the respective grant dates.

2.       LIQUIDITY AND BUSINESS RISKS

         The Company has incurred operating losses since inception, has incurred
         negative cash flows from  operating  activities,  has negative  working
         capital and had an accumulated  deficit of $35,412,456  and $25,866,986
         as of December 31, 1998 and 1997,  respectively.  The Company has had a
         limited  operating  history as a software  product  company and has not
         made  significant  sales  of  its  products,  therefore,  revenues  are
         difficult to predict.  The Company  anticipates  that its cash and cash
         equivalent  balances at December  31, 1998 and  anticipated  cash flows
         from existing  financing  arrangements (Note 7) will be insufficient to
         satisfy its operating cash flow requirements in the foreseeable future.
         Accordingly,  the  Company  will  seek to  sell  additional  equity  or
         convertible debt securities,  however,  there can be no assurances that
         the Company will be successful in raising additional funds. The sale of
         additional  equity  or  convertible  debt  securities  will  result  in
         additional dilution to the Company's stockholders.

3.       SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                                           Year Ended
                                                                                           December 31,
                                                                                     1998              1997
                                                                                     ----------------------

<S>                                                                               <C>              <C>       
              Interest paid during the period                                     $   154,065      $  374,691
              Schedule of non cash investing and financing activities:
                   Capital lease obligations entered into during the period            29,202         561,119
                   Series D Preferred Stock, issued for:
                       Dividends                                                            -         917,571
                   Series D Preferred options issued for consulting services                -         321,470
                   Series A Preferred Stock, issued for:
                       Bridge Financing                                                20,000               -
                   Common stock warrants issued in connection with
                       Bridge Financing                                                     -       1,512,397
                   Common stock options issued for consulting services                145,792         363,800
                   Beneficial conversion feature of Series A and B
                       Convertible Preferred Stock                                  2,251,438               -

</TABLE>

                                      F-9
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


4.       PROPERTY AND EQUIPMENT

         PROPERTY AND EQUIPMENT INCLUDED THE FOLLOWING:

                                                     December 31,
                                                        1998
                                                     ------------

Computer equipment and software                     $  1,779,772
Furniture and fixtures                                   195,799
Office equipment                                          96,602
Leasehold improvements                                    22,348
                                                  ---------------

                                                       2,094,521

Less: accumulated depreciation and amortization        1,134,285
                                                  ---------------

                                                   $     960,236
                                                  ---------------


5.       ACCRUED EXPENSES

         ACCRUED EXPENSES INCLUDED IN THE FOLLOWING:

                                       December 31,
                                            1998
                                       ------------

Executive compensation                $     171,955
Compensation and related benefits           247,632
Consulting and professional fees            168,075
Interest                                     12,086
Commissions                                   9,250
Other                                       186,335
                                     ---------------

                                      $     795,333
                                     ---------------


6.       BORROWING ARRANGEMENTS

         LOAN PAYABLE TO STOCKHOLDER
         In May 1992, the Company entered into a borrowing arrangement whereby a
         stockholder  agreed to advance the Company funds at an interest rate of
         18% per annum.  Such  borrowings were  collateralized  by the Company's
         accounts receivable. In May 1996, the Company was in default of certain
         provisions  of the  agreement,  at which time the  stockholder  and the
         Company  amended  the  agreement  to reduce  the  interest  rate to the
         greater  of prime  plus 3% or 12% per annum and delay the time that the
         stockholder  could  demand  repayment  until  March  1998.  The revised
         agreement  required  the  Company  to set aside  funds in a  restricted
         account to the extent that the outstanding  borrowings  exceeded 80% of
         the  Company's  accounts  receivable  and to make  monthly  payments of
         $10,000,  plus  interest,  until  March  1998.  The  Company  paid  the
         obligation  in full during 1998 with funds in the  restricted  account.
         Interest expense related to this agreement was $64,067 and $114,634 for
         1998 and 1997, respectively.

                                      F-10
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         LOAN RECEIVABLE FROM STOCKHOLDER
         In January 1998,  the Company loaned $65,000 to an officer and director
         of the Company.  This promissory note has a term of 24 months and bears
         interest at 8% per annum.

         INTERIM FINANCING
         In September and October 1998, the Company borrowed a total of $490,000
         from  stockholders of the Company in exchange for unsecured  promissory
         notes (the "Notes Payable"). The Notes Payable bear interest at 12% per
         annum  and are  due at the  earlier  of  March  2000 or the  successful
         consummation of the Series A and Series B Private  Placement.  Upon the
         initial  closing of the  Series A Private  Placement  in October  1998,
         $20,000 of such Notes were  converted  into Series A Units and $170,000
         of such  Notes  were  repaid  through  December  1998.  The  balance of
         $300,000,  outstanding  at  December  31,  1998,  was repaid in full in
         January 1999.

         In May 1997, the Company  received a $500,000 loan with interest at 10%
         per annum, from existing  stockholders.  The loan was repaid out of the
         proceeds of the Bridge Financing, as described below.

         In  June  1997,  the  Company   received   additional  loans  from  two
         stockholders  each  consisting  of a $100,000  promissory  note bearing
         interest of 10% per annum  through  September 30, 1997 and 13% annually
         thereafter  and  attached  warrants to purchase up to 23,850  shares of
         common  stock at $8.56  per  share.  These  notes  were paid out of the
         proceeds of the IPO.

         In July 1997, the Company borrowed $250,000 which was repaid out of the
         proceeds from the Bridge Financing.

         BRIDGE FINANCING
         On July 30, 1997, the Company  completed a $4,300,000  Bridge Financing
         (the "Bridge  Financing").  The gross proceeds to the Company from such
         financing were approximately $3,764,000,  net of approximately $536,000
         of issuance costs.

         In connection with the Bridge  Financing,  the Company issued 43 units,
         each consisting of a $100,000 promissory note (the "Bridge Note") and a
         warrant  (the "Bridge  Warrant")  allowing the holder to purchase up to
         25,000  shares of the  Company's  common  stock at a price of $8.56 per
         share.  The Bridge  Warrants are  exercisable on or after July 30, 1998
         and expire on July 30,  2003.  The Bridge Notes  accrued  interest at a
         rate of 10% per annum from July 30, 1997  through  September  30, 1997,
         and at a rate of 13% per  annum  thereafter,  and were  paid out of the
         proceeds  of the IPO.  As an  incentive  for early  participation,  the
         Company issued to certain  investors,  warrants to purchase up to 6,309
         shares of common  stock at a price of $8.56,  in addition to the Bridge
         Warrants that were included in the bridge units. A portion of the gross
         proceeds from the Bridge Financing was allocated to the Bridge Warrants
         based on their  estimated  fair market value and resulted in $1,512,397
         of original  issue  discount and a  corresponding  amount of additional
         paid in capital.

         In October 1997,  the Company  issued  $600,000 of principal  amount of
         unsecured  promissory  notes to stockholders of the Company.  The notes
         bore interest at 15% per annum and were paid out of the proceeds of the
         IPO.

         On November  25,  1997,  the  Company  repaid the holders of the Bridge
         Notes,  out of the  proceeds of 


                                      F-11
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         the Company's IPO.  Accordingly,  the Company recorded an extraordinary
         loss of $1,629,494  related to the early  extinguishment  of debt.  The
         extraordinary  loss was comprised of $1,193,692  related to unamortized
         deferred  debt  discount  and  $435,802 of  unamortized  deferred  debt
         issuance costs related to the Bridge Notes.

7.       STOCKHOLDERS' EQUITY

         COMMON STOCK
         On November  20, 1997,  the  Company's  IPO of 2,500,000  shares of its
         common stock was declared effective,  which resulted in net proceeds to
         the Company of $12,469,574 before repayment of the Bridge Financing. As
         of the closing date of the offering,  all of the Company's  Convertible
         Preferred Stock and Mandatorily  Redeemable Convertible Preferred Stock
         outstanding  was converted into 331,523 and 1,365,790  shares of common
         stock, respectively.

         At December  31,  1996,  warrants to purchase  56,563  shares of common
         stock were  outstanding,  with  exercise  prices  ranging from $2.40 to
         $22.00  per  share,  and were  immediately  exercisable.  During  1997,
         warrants to purchase a total of 30,000 shares were exercised, resulting
         in net  proceeds  to the  Company  of  $72,000.  The  remainder  of the
         warrants expired upon completion of the Company's IPO.

         During  December 1997, the Company granted an option to a member of its
         Advisory  Committee to purchase up to 200,000  shares of common  stock.
         The  option had an  initial  exercise  price of $6.00 per share and was
         immediately exercisable. In conjunction with the stock option repricing
         discussed  in Note 8,the Board of Directors  approved the  repricing of
         this  option in  November  1998 to $.94.  The  Company  has  recognized
         consulting  expense in its results of  operations  of $272,000  for the
         year ended  December  31, 1997 related to this  option.  No  additional
         consulting expense was recognized in 1998 based on the Company's common
         stock.

         During  1997,  a member of the  Board of  Directors  surrendered  7,386
         shares of the Company's  common stock as repayment of a note receivable
         due to the Company in the amount of $42,000.  Such shares were  retired
         in December 1997.

         PREFERRED STOCK
         In October and November  1998,  the Company had the initial  closing of
         two private  placements.  The Series A Private  Placement  consisted of
         1,750,000  Units (the  "Series A Units")  with a gross  sales  price of
         $3,500,000.  The Series B Private Placement  consisted of 10 Units (the
         "Series B Units") with a gross sales price of $1,000,000. Each Series A
         Unit consisted of one share of Series A Convertible Preferred Stock and
         a  warrant  to  purchase  2.5  shares  of  Common  Stock at a per share
         exercise  price  equal to $.50.  Each  Series B Unit  consisted  of ten
         thousand shares of Series B Convertible Preferred Stock and warrants to
         purchase an aggregate of 125,000  shares of Common Stock at a per share
         exercise  price  equal  to $.50.  The  Series  A Units  were  sold at a
         purchase price of $2.00 per Unit and each Series A share is convertible
         into four  shares of Common  Stock.  The  Series B Units were sold at a
         purchase  price  of  $100,000  per  Unit  and  each  Series  B share is
         convertible into twenty shares of Common Stock. The effective  purchase
         price,  on a common stock  equivalent  basis was $.50 per common share,
         which  represented  a  discount  from  the  fair  market  value  of the
         Company's common stock on the various dates of issuance. As of December
         31,  1998,  1,731,125  and  100,000  shares of  Series A and  Series B,
         respectively,  were issued. All subscriptions receivable as of December
         31, 1998 were received by the Company in January and February 1999.

                                      F-12
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         In  connection  with the Series A and Series B Private  Placements  the
         placement agent was granted an option to purchase  additional  Series A
         and Series B Units equal to 10% of the Series A and Series B Units sold
         and received a commission and  non-accountable  expense allowance equal
         to 5.6% and 9.3%,  respectively,  of the gross proceeds received by the
         Company.

         The following is a description of the securities issued in the Series A
         and Series B Private Placements:

         STATED VALUE
         Each  share of Series A  Preferred  Stock has a stated  value  equal to
         $2.00 and each  share of Series B  Preferred  Stock has a stated  value
         equal to $10.00.

         LIQUIDATION PREFERENCE
         Upon a liquidation,  merger or consolidation of the Company,  where the
         Company is not the surviving entity,  the assets of the Company will be
         available  for  distribution  to the  stockholders,  after  payment  or
         provision for  liabilities  of the Company,  in the following  order of
         priority:  (i) the holders of the Series A and Series B Preferred Stock
         shall rank pari passu with respect to  distributions,  (ii) the holders
         of the Series A and  Series B  Preferred  Stock  shall be  entitled  to
         receive  preference  to any  distribution  to the holders of any Junior
         Securities of the Company, an amount equal to the Series A and Series B
         Stated Value , respectively,  for each share of the Series A and Series
         B Preferred Stock then  outstanding  and (iii) the remaining  assets of
         the Company  available for  distribution,  if any, shall be distributed
         pro rata to the  holders  of issued  and  outstanding  shares of Common
         Stock.

         DIVIDENDS
         The holders of the Series A and Series B  Preferred  Stock shall not be
         entitled to receive any stated dividend payment.

         CONVERSION
         The  holders  of the  Series A and  Series B  Preferred  Stock have the
         right,  at the holder's  option,  to convert each share of Series A and
         Series  B  Preferred   Stock  into  four  shares  and  twenty   shares,
         respectively, of Common Stock.

         The Series A and Series B convertible  Preferred Stock were issued with
         a conversion ratio that represented a discount from the market value at
         the time of issuance.  Accordingly,  the discount  amount is considered
         incremental  yield  (the  "beneficial  conversion  feature"),   to  the
         preferred  stockholders  and  has  been  accounted  for as an  embedded
         dividend to preferred  stockholders.  Based on the conversion  terms of
         the Series A and Series B  convertible  Preferred  Stock,  an  embedded
         dividend of $2,251,438 or $0.44 per share, was added to net loss in the
         calculation of net loss per share in 1998.

         VOTING
         The holders of the Series A and Series B Preferred  Stock are  entitled
         to vote on all matters  submitted for a vote to the stockholders of the
         Company.  The  holders  of a share of Series A and  Series B shares are
         entitled  to vote with  holders  of common  stock,  on an  as-converted
         basis.

         WARRANTS
         Each Series A and Series B Warrant  entitles the  registered  holder to
         purchase 2.5 shares of Common  Stock,  subject to adjustment to protect
         against  dilution,  at a  per  share  exercise  price  equal  to  $.50,

                                      F-13
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         commencing  on the  date of the  initial  closing  of the  Series A and
         Series B shares  Private  Placements,  respectively,  and ending on the
         third anniversary of such closings.  The Series A and Series B Warrants
         may be called for  redemption  by the Company at a redemption  price of
         $.01 per warrant upon not less than 30 days prior written notice if the
         closing  price of the Common  Stock  shall have been at least $1.60 per
         share on 20 trading days during any  30-consecutive  day trading period
         ending not more than three days prior to the date such notice is given.

8.       EMPLOYEE STOCK OPTIONS

         In 1991, the Board of Directors  approved the 1991 Incentive Stock Plan
         (the  "Plan")  which was  subsequently  amended and allows the Board to
         grant either incentive or non-qualified  stock options to the Company's
         employees or consultants.  The options generally expire five years from
         the date of  grant.  Individuals  owning  more  than  10% of the  total
         combined  voting  power of all  classes of stock of the Company are not
         eligible to participate in the Plan unless the option price is at least
         110% of the fair market value of the common stock at the date of grant.

         A summary of the activity under the stock option plan is as follows:

<TABLE>
<CAPTION>
                                                               OPTIONS                      EXERCISE
                                                            AVAILABLE FOR    SHARES UNDER     PRICE
                                                                GRANT           OPTION      PER SHARE
                                                          -------------------------------------------

<S>                                                           <C>             <C>         <C>     
         Options outstanding at January 1, 1997                 136,694        151,800     $    .96

         Additional shares authorized                         1,512,500           --             --
         Granted                                               (791,999)       791,999     .96-6.00
         Exercised                                                 --          (27,070)         .96
         Canceled                                                54,305        (54,305)    .96-6.00
                                                             ----------       ---------    ---------

         Options outstanding at December 31, 1997               911,500        862,424     .96-6.00

         Additional shares authorized                         3,856,000           --
         Granted                                             (3,836,113)     3,836,113     .94-6.00
         Exercised                                                 --          (12,380)        0.96
         Canceled                                               300,121       (300,121)    .96-6.00
                                                             ----------       ---------    ---------

         Options outstanding at December 31, 1998             1,231,508      4,386,036    $.94-6.00
                                                             ----------       ---------    ---------

         Options exercisable at December 31, 1998                             $447,073    $.94-6.00
                                                             ----------       ---------    ---------

</TABLE>

         The Company granted 959,800 and 23,750  non-qualified  stock options to
         consultants and recognized  consulting  expense of $145,792 and $49,470
         related to these options in 1998 and 1997 respectively.

         The Company  accounts for stock options  granted to employees under APB
         25 and has adopted SFAS 123 for disclosure  purposes.  Because  options
         granted to employees  in 1998 and 1997 had exercise  prices equal to or
         greater  than the fair market value of the  underlying  common stock at
         the respective grant dates, as determined by the Company's  management,
         compensation  expense has not been recognized in results of 


                                      F-14
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         operations.  The pro forma impact of SFAS 123 on the Company's  results
         of  operations  related to  options  granted  during  1998 and 1997 was
         immaterial to the Company's actual results of operations.

         In October  1997,  the Company's  Board of Directors  and  stockholders
         authorized an increase in the number of shares reserved for issuance to
         1,950,000  pursuant to the Plan. In November 1998, the Company's  Board
         of Directors  approved an  additional  increase in the number of shares
         reserved  for  issuance  to   5,806,000.   This   increase  is  pending
         stockholder approval.  The Board of Directors also approved a repricing
         of 1,168,186 options  previously  granted pursuant to the Plan to a per
         share  exercise price of $.94, the fair market value on the date of the
         repricing.  The repriced options, which had original exercise prices of
         between $.96 and $6.00 per share,  will have the same vesting  terms as
         the original option grants. All options issued during November 1998 and
         thereafter  will  have a term of seven  years  from the date of  grant.
         Options  issued to  employees  will vest over a  three-year  period and
         options issued to non-employees will vest over two years.

9.       MAJOR CUSTOMERS

         Sales to major customers, as a percentage of revenues, are as follows:

                                             Year Ended          Year Ended
                                             December 31,        December 31,
                                                1998                1997
                                             ------------        ------------

         A                                       32%                  -
         B                                       24%                  -
         C                                       10%                  -
         D                                       14%                  65%

         At December  31,  1998,  customers C and D  represented  33% and 40% of
         total accounts receivable, respectively.

         International sales for the year ended December 31, 1998 were $157,500,
         or 17% of total revenues.  International sales were not material during
         1997.

10.      EMPLOYEE BENEFITS PLANS

         The Company has a 401(k) savings plan (the "Savings Plan") covering all
         full-time  employees and  qualifying  part time  employees.  As allowed
         under Section  401(k) of the Internal  Revenue  Code,  the Savings Plan
         provides   tax-deferred   salary  reductions  for  eligible  employees.
         Employees  are  eligible  to  participate  after a  ninety-day  service
         requirement.  Participants  may  make  voluntary  contributions  to the
         Savings Plan up to 20% of their compensation, subject to annual limits.
         The Savings Plan permits company contributions, however, none were made
         during the years ended December 31, 1998 and 1997.


                                      F-15
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

11.      OBLIGATIONS UNDER CAPITAL AND OPERATING LEASES

         The Company is obligated  under capital leases for computers and office
         equipment  through  the  year  2001.  All  assets  leased  under  these
         agreements  have  been  capitalized  and the  related  obligations  are
         reflected in the accompanying  consolidated  financial statements based
         upon the present value of future minimum lease  payments.  In addition,
         the Company  leases its office  facilities  and certain  furniture  and
         equipment.  These  operating  leases are  noncancellable  and expire on
         various dates through 2004.

         The future minimum lease payments under capital and operating leases at
         December  31,  1998  and the  present  value of the net  minimum  lease
         payments are as follows:

                                                        Operating      Capital
         Year Ending December 31,                        Leases        Leases
                                                      --------------------------
         
         1999                                         $  461,563      $  207,303
         2000                                            355,191         170,842
         2001                                            363,534          10,001
         2002                                            389,905            --
         2003 and thereafter                             378,950            --
                                                      ----------      ----------

         Total minimum lease payments                 $1,949,143         388,146
                                                      ----------      ----------

         Less: amounts related to interest                                40,851
                                                                      ----------

         Present value of net minimum lease payments                     347,295
         Less: obligation due within one year                            175,809
                                                                      ----------

         Long-term obligation under capital leases                    $  171,486
                                                                      ----------

         During  1997  and  1998,  the  Company   refinanced  certain  equipment
         purchased during 1997 and 1996, under a sale/leaseback agreement. These
         transactions  were  accounted for as  financings,  wherein the property
         remained  on the  books  and  continues  to be  depreciated.  Financing
         obligations  representing  the proceeds  were  recorded and are reduced
         based upon payments under the lease over a 42 month period.

         In November 1996, the Company  entered into a $500,000  equipment lease
         line of credit. In December 1997, this agreement was amended to provide
         the  Company  with an  additional  $250,000  line of credit  under this
         facility,  with a three year  repayment  term.  As of December 31, 1998
         this line of credit had expired.

         Rental expense under operating leases was $445,755 and $453,794 for the
         years ended December 31, 1998 and 1997, respectively.

                                      F-16
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

12.      INCOME TAXES

         The tax effect of temporary  differences  and  carryforwards  that give
         rise to significant portions of the deferred tax assets and liabilities
         at December 31, 1998 was:

                                                                       1998
                                                                  ------------

                  Deferred rent                                   $    107,932
                  Accounts payable                                     196,577
                  Accrued expenses                                     318,133
                  Deferred revenues                                     33,916
                  Software cost expense                                268,804
                  Net operating loss carryforward                   11,862,015
                  Research and experimental credit carryforwards       207,515
                  Other payable                                        120,000
                  Other deferred tax assets                            450,184
                                                                  ------------

                       Deferred tax assets                          13,565,076

                  Depreciation                                        (245,080)
                  Accounts receivable                                 (110,611)
                  Prepaid expenses                                     (15,100)
                                                                  ------------

                       Deferred tax liabilities                       (370,791)

                  Net deferred tax assets                           13,194,285
                       Less: valuation allowance                   (13,194,285)
                                                                  ------------

                  Net deferred tax assets                         $       --
                                                                  ------------

         The Company has  recorded a full  valuation  allowance  against its net
         deferred  tax  assets  since  management  believes  that based upon the
         available  objective  evidence  it is more  likely  than not that these
         assets will not be  realized.  The  difference  between  the  statutory
         federal tax rate and the Company's  effective tax rate is primarily due
         to the valuation allowance.

         As of  December  31,  1998,  the  Company  has net  operating  loss and
         research and  experimental  tax credit  carryforwards  of approximately
         $29,660,000  and  $207,000,  respectively,  available to offset  future
         federal  taxable  income and tax.  These  carryforwards  will expire at
         various dates beginning in 2007 through 2018.  Under Section 382 of the
         Internal  Revenue Code of 1986,  as amended,  utilization  of prior net
         operating  losses  ("NOLs") is limited  after an ownership  change,  as
         defined in such Section 382. As a result of previous transactions which
         involved an  ownership  change as defined by Section  382,  the Company
         will be  subject  to  limitation  on the use of its NOLs.  Accordingly,
         there can be no  assurance  that a  significant  amount of the existing
         NOLs will be available to the Company.

                                      F-17

<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

13.      COMMITMENTS

         EMPLOYMENT AGREEMENTS
         The Company has  entered  into  long-term  employment  agreements  with
         certain key members of management. The agreements provide each employee
         with base annual compensation and incentive  compensation  payable upon
         attaining  certain  corporate  targets  as  determined  by the Board of
         Directors. The agreements provide that in the event of the termination,
         other than for cause,  the  executives  will be entitled to between six
         and twelve months of severance.  The aggregate annual commitments under
         these  employment  agreements  are  $262,292  and $0 for 1999 and 2000,
         respectively.

         In March  1998,  the former  Chairman  of the Board and  officer of the
         Company tendered his resignation effective May 26, 1998. In conjunction
         with the  resignation  the  Company  agreed to  provide  twelve  months
         severance which will be paid over the period of one year.